Think twice about allowing your spouse to keep the house without removing your name from the obligation.
Something I have seen a great deal recently are cases in which one party has allowed the other party to keep the family residence as part of the asset division in the divorce and has remained on the mortgage loan.
This was done quite frequently prior to 2009 with the anticipation that the party keeping the family residence would simply refinance the loan and remove the other party from the mortgage.
While this may have seemed like a good solution prior to the end of easy credit when there was no requirement that a person show they could actually repay the loan, now it has put the person who stayed on the obligation without retaining the asset in deep trouble when the party keeping the home found themselves unable to make the mortgage payments.
If you stay on the mortgage, you are obligated to make the payments to your mortgage holder, period. Even if your divorce judgment makes it clear that the party keeping the home must make the payments, this is not binding on your mortgage holder. They are not required, nor will they usually, take your name off of the loan obligation. Your mortgage bank wants to make sure they are paid and they have a better chance of that if they keep you obligated to repay the loan even if the house is no longer in your name. The only way out is to pay off the mortgage, which is usually done through a refinance or sale. But unless you have excellent credit and can demonstrate an ability to repay the loan, you are unlikely to qualify for refinancing in today’s tight credit market. And if, like many other people, you find that your home has no equity, or worse, negative equity, a sale will not help.
Even worse, if the home was refinanced or you live in a state that has recourse loans for any deficiency, you may still owe on the home after it is lost to foreclosure or sold for less than what is owed on the mortgage. Once your home is refinanced, the mortgage is no longer “purchase money” and protections from “anti-deficiency” laws will not apply. This also applies to equity lines and second mortgages. If your home is sold for less than is owed and your mortgage bank agrees to a “short sale,” thereby forgiving the balance that would be due to them, the IRS may tax you on the portion of the loan the bank has forgiven.
Any way you look at it, if you are obligated to pay for an asset that now belongs to your former spouse, you could find yourself in deep financial and/or credit distress through no fault of your own!
If you are thinking about allowing your spouse to keep the house without refinancing to remove your name from the obligation, you might want to think twice. At least, if you are going to take the chance and remain on the loan, have something written in your settlement/judgment that has a remedy if the other party fails to make the payment. It could save your credit, savings, job and perhaps your sanity if you hope for the best and plan for the worst.
About Barbara Hammers
Ms. Hammers is a native Southern Californian born in Glendale, California. After several years of running successful businesses, she earned her degree in Psychology, graduating with highest honors from California State University, Fullerton.
Ms. Hammers went on to earn her law degree from University of California, Los Angeles, and started her own practice shortly thereafter. Although she has some civil litigation experience, she has concentrated her law practice in the area of domestic relations/Family Law since 1997. She is certified as a Specialist in Family Law by the State Bar of California, Board of Legal Specialization.
Ms. Hammers is currently the senior litigation partner in Hammers & Baltazar, LLP, with offices located in Santa Monica and Newport Beach, California.
Her organizational memberships include the Family Law Sections of the State Bar of California, Los Angeles County Bar Association, Santa Monica Bar Association, Beverly Hills Bar Association, Orange County Bar Association, American Bar Association and is currently a member of the Family Law Executive Committee for the State Bar of California (FLEXCOM). She was the Chair for the State Bar of California's Children's Issues Committee from 2005 to 2009, was the Committee's Secretary from 1998 to 2003, and the Vice Chair from 2003 to 2004. She is currently serving as a member of the Board of Directors for the Association of Certified Family Law Specialists. She is the Chair of the Santa Monica Bar Association's Family Law Section and is the incoming president of the Santa Monica Bar Association. She is a member of the Los Angeles County Bar Association's Family Law Section Executive Committee. She is a graduate of the American Bar Association, Family Law Trial Advocacy Institute.
Ms. Hammers has lengthy experience in program presentations for the Family Law Section of the Santa Monica Bar Association and has coordinated and hosted monthly MCLE programs approximately 10 times per year since 2006. She has developed and presented programs for the American Bar Association's Family Law Section and has assisted in the development of programs for the State Bar of California, Family Law Section. She has also authored articles on fathers paternity rights, division of stock options, law practice management, domestic violence prevention, and various other topic of interest to the family law community.
Her volunteer efforts in the community have included assisting victims of Domestic Violence through volunteering at local Domestic Violence Clinics in Los Angeles County, and she has been assisting the Los Angeles County Superior Court in Family Law, Traffic, Civil Harassment, and Small Claims in courthouses throughout Los Angeles County since 2007.
Early training as a litigator allows her to move comfortably in the family court system but her natural talents as a problem solver make her an excellent mediator. In her desire to offer the full range of legal services to the family law client, she has expanded her practice to include Collaborative Divorce which allows the family law client an alternative to the traditional legal model of litigation to resolve disputes. Collaborative Divorce allows the clients and their counsel to fashion remedies that make the process of divorcing one with the potential of growth for both parties while preserving the resources of the couple and lessening the damage to children often experienced in the adversarial process. The outcome is usually better than can be obtained in the traditional litigation setting.
Ms. Hammers can be contacted at her office in Los Angeles County at Hammers & Baltazar, 1410 2nd Street, Suite 302, Santa Monica, CA 90401 (310) 458-0796, or at her Orange County office located at 901 Dover Drive, Suite 211, Newport Beach, CA 92660 (949) 631-2805.
Areas of Practice:
100% Family Law
Litigation Percentage:
75% of Practice Devoted to Litigation
Certification/Specialties:
Family Law, State Bar of California, Board of Legal Specialization, 2006
Bar Admissions:
California, 1997 U.S. District Court Central District of California, 1997
U.S. Supreme Court, 1997
Education:
University of California at Los Angeles School of Law, Los Angeles, California, 1997 J.D.
California State University, Fullerton, California, 1994 B.S.
Honors: Summa Cum Laude
Honors: Dean's List & Consecutive Semesters Major: Psychology
Citrus Community College, Glendora, California, 1991
Associate Science
Honors: With Honors
Major: Cosmetology
Professional Associations and Memberships:
State Bar of California, Family Law Section, 2008 - 2011 Executive Committee
Los Angeles County Bar Association Member
Santa Monica Bar Association, 2009 - 2010 President Elect Beverly Hills Bar Association Member
Orange County Bar Association Member American Bar Association Member State Bar of California, 2005 - 2008 Chair,
Children's Issues Committee State Bar of California, 1998 - 2003
Children's Issues, Committee Secretary State Bar of California, 2003 - 2004
Children's Issues, Vice Chair Santa Monica Bar Association, Family Law Section, 2006 - 2009 Chair
The Santa Monica Bar Association Board of Trustees
Los Angeles County Bar Association, Family Law Section, 2007 - 2010 Member, Executive Committee
You must log in to post a comment.